India's demonetisation drive has impacted gold demand in the short term but buying is showing signs of revival and post the presentation of the national budget on February 1, the market will be back to normal, says the India chief of World Gold Council.

"In November and December (during the demonetisation drive) certainly there was some impact. But people have started buying again. We hope soon after the budget, buying will normalise," Somasundaram P.R., Managing Director, India, World Gold Council, told media in an interview.

He also said demonetisation will have a positive impact on the gold industry in the long run as it will curb grey market trades substantially. "Overall impact of demonetisation will be positive -- industry will come under organised business. Of course the transition will take some time," he said.

"Business during the demonetisation period was hurt as people were mostly busy exchanging old notes and genuine buyers stayed away, fearing they might come under the tax scanner."

The World Gold Council (WGC) on Tuesday also launched the report titled "India's Gold Market: evolution and innovation", providing an overview of the industry in the last 15 years. The report also said demonetisation will have a significant impact on the economy in the short-term.

"Rumours over caps on gold holdings and buying added fuel to the fire. As tax authorities probed some jewellers who had immediately after demonetisation created opportunity to convert old notes currency for fake or back-dated sales, the resultant panic ensured that genuine gold buyers were reluctant even to buy wedding jewellery," the report added.

The WGC had forecast India's full year gold demand between 650-750 tonnes for 2016. Till the third quarter (July-September) of 2016 the demand was at 443 tonnes. It is forecast that India's average gold demand will be 850-900 tonnes per annum by 2020.

In 2000, around 90 per cent of India's gold retailers were "unorganised". But by 2020, the organised share of the market will rise to 35-40 per cent. At present, there are around 400,000 jewellers in India, said the report.

The report said gold demand responds more to income than it does to price.

"Our econometric analysis of data from 1990 to 2015 revealed that income levels are the most significant long-term determinants of consumer gold demand -- 1 per cent rise in income boosts gold demand by 1 per cent," he added.

But if prices go up by 1 per cent then demand falls by half a per cent only. "Thus gold demand responds more strongly to income growth than price." The short-term gold demand largely depends on four factors -- tax, price, monsoon and inflation, said the report.

It said in 2015, plain gold jewellery accounted for 88 per cent of purchases in rural India. In urban India the figure was 57 per cent, with gem-set pieces accounting for 35 per cent of gold jewellery bought. Around 60-65 per cent of jewellery manufactured in India is handmade.

It said India's gold stock is around 23,000-24,000 tonnes, valued at over $800 billion. Southern India has the highest market share for gold demand at 40 per cent, western India at 25 per cent, while northern and eastern India have 20 per cent and 15 per cent share, respectively.

"Given that weddings are a key occasion for buying gold and the fact that 500 million of the population is under the age of 25, the number of weddings and subsequently the occasions for buying gold are likely to be higher," Somasundaram said.

"The outlook for jewellery demand is favourable."